Wednesday January 18, 2006

Demand destruction: who gets destroyed?

energybulletin.net -> resourceinsights.blogspot.com :

An economist who accepts the possibility of an oil peak may believe that the marketplace will allow us to make a relatively smooth transition to a new energy economy as the price encourages the development of alternatives to oil and as demand is destroyed. The latter phrase is often glossed over. But demand destruction is at the core of misconceptions by economists about the likely course of events leading up to and following an oil peak.

An economist will point out that people will stop using oil for some applications and will turn to alternatives where they are available. All that is true enough. But it is worth asking what they mean by "applications." In reality, it is the poor who will stop using oil for "some applications," both in industrialized countries and across the world. If alternatives are not available or are just as expensive, they will simply have to forgo the benefits of those "applications." That will help keep a lid on oil prices, but it won't solve the problem: too little oil for all the activities that power and feed 6 billion people.

The heightened price of oil would certainly encourage conservation - i.e., demand destruction - but that conservation might come in the form of terrible hardship for millions and perhaps billions of people and possibly death for many. That would give a rather gruesome connotation to the notion of demand destruction.

If one assumes that the oil peak is far off and that technology will allow us to make a smooth transition to the next energy economy (and solve other related problems that threaten to annihilate us such as global warming), then there is no need to worry about the effects of sudden demand destruction in the oil markets. But, if the peak arrives soon, say, within the next 10 to 15 years, then no bloodless abstraction such as "demand destruction" will be able to obscure the fact the it is people who are going to get destroyed, and lots of them.

(2006-01-18 13:14:36 SGT) [Energy] Permalink

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